The LCAs nominated for 1997-98 and agreed by Loan Council at its meeting on 21 March 1997 are set out in Table 20. In aggregate, they represent a surplus of $6.9 billion - a substantial improvement on the $3.3 billion deficit currently estimated for 1996-97. The turnaround largely reflects the expected improvement in the Commonwealth's position.
Loan Council noted the Commonwealth's announcement that it will continue to work towards the aim of balancing the budget over the term of the current Parliament and that this will require further fiscal tightening in the 1997-98 Budget. Against that background, Loan Council considered that the aggregate of LCA nominations is consistent with current macroeconomic policy objectives.
With the exception of New South Wales, LCA nominations were provided on a no policy change basis. They thus provide a well defined indication of the public sector's likely call on financial markets. The actual call may vary from the nomination primarily because of changes in economic parameters and policy measures. Updated information will be provided to financial markets through publication by each jurisdiction of its budget time LCA and a mid-year update of its expected LCA outcome.
A tolerance limit of 2 per cent of total non-financial public sector revenue applies between the LCA approved by Loan Council and the budget time LCA, and again between the budget time LCA and the LCA outcome. Tolerance limits recognise that LCAs are nominated at an early stage of budget processes and that estimates are likely to change as a result of policy and parameter changes before and after budgets are brought down. If a jurisdiction expects to exceed the upper or lower bound of the tolerance limit around its LCA estimate, it is obliged to provide an explanation to Loan Council and to make this explanation public. While Loan Council would not be required formally to approve the change, it would have the opportunity to pursue with the particular jurisdiction any concerns raised by the new LCA estimate.
| BOX 2: LOAN COUNCIL
The Australian Loan Council is a Commonwealth-State Ministerial Council which co-ordinates public sector borrowings under voluntarily agreed arrangements. It comprises the Commonwealth Treasurer as Chairman and his counterparts from the States and Territories, and usually meets in conjunction with the annual Premiers' Conference. Loan Council was established in 1927 under the Financial Agreement between the Commonwealth and the States and was continued in existence under the Financial Agreement between the Commonwealth, States and Territories which became effective in 1995. Commonwealth-State cooperation in this area derives from a common interest in ensuring that overall public sector borrowing in Australia is consistent with sound macroeconomic policy and that borrowings by each government are consistent with a sustainable fiscal strategy. The Loan Council arrangements introduced from 1993-94 are designed to enhance the role of financial market scrutiny as a discipline on borrowings by the public sector. In doing so, they build on changes instituted in the late 1980s which gave the individual States responsibility for managing their own borrowings with the aim of making them more accountable to the markets for their actions. The arrangements therefore emphasise transparency of public sector finances rather than adherence to strict borrowing limits. The Loan Council process is supported by uniform, comprehensive reporting of public sector finances to assist Parliaments, financial markets and the public to make their own judgements about each government's financial performance. Loan Council recently agreed to changes to the Loan Council reporting arrangements as part of a revised uniform presentation framework for government financial information to apply from 1998-99. The revised uniform presentation framework is discussed briefly in this chapter and more fully in Statement 7 of Budget Paper No. 1. |